Benzinga | Mar 12, 2021 02:10PM EST

Why The British American Tobacco Investment In OrganiGram Is Important

OrganiGram Holdings Inc's (NASDAQ:OGI) stock is likely to re-rate following the investment by a subsidiary of British American Tobacco PLC (NYSE:BTI), according to Cantor Fitzgerald.

The OrganiGram Analyst: Pablo Zuanic maintained an Overweight rating for OrganiGram Holdings, while raising the price target from C$3.50 to C$6.

The OrganiGram Thesis: The latest deal for a 19.9% stake in OrganiGram makes British American Tobacco the third tobacco company to invest in cannabis, Zuanic said in the note.

"We think the OGI stock valuation should now reflect the potential for BATS to increase its stake in the future as well as a strengthened B/S that provides M&A optionality, room for potential international collaboration, and the potential for OGI to further bolster its already well-recognized product development and innovation capabilities," he wrote.

"Following the C$221Mn investment, OGI will have cash holdings and short-term investments of C$296Mn, according to management. Only C$30Mn of the C$296Mn is to go for joint product development, so OGI should also have enhanced ability for M&A," the analyst said.

OGI Price Action: Shares of OrganiGram had declined by 5.32% to $3.82 at the time of publication Friday.

(Image: OrganiGram Holdings)